Frederick Grede v. FCStone LLC
746 F.3d 244
| 7th Cir. | 2014Background
- Sentinel Management Group, Inc. filed for Chapter 11 on August 17, 2007 amid the 2007-2008 credit crunch.
- Sentinel’s managers allegedly converted customer assets held in two statutory trusts (CEA and IAA) for their own use.
- Two transfers to FCStone occurred: a $22.5 million pre-petition transfer to FCStone plus a $14.5 million post-petition transfer authorized by the bankruptcy court.
- The pre-petition transfer purportedly settled a securities transaction and fell within 11 U.S.C. § 546(e) safe harbor; the post-petition transfer was alleged to be authorized by the bankruptcy court and to involve property of the estate.
- The district court avoided both transfers, but the district court’s rulings were appealed; the Seventh Circuit reverses and remands.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the pre-petition transfer was protected by § 546(e) safe harbor | Grede argued transfers were avoidable under § 547 | FCStone argued transfer qualified as a settlement payment and in connection with a securities contract under § 546(e) | Yes, within § 546(e) safe harbor; cannot be avoided |
| Whether the post-petition transfer was authorized by the bankruptcy court under § 549 | Trustee contends transfer not authorized and thus avoidable | FCStone contends transfer was authorized by the bankruptcy court and involved property of the estate | Yes, the post-petition transfer was authorized; § 549 prevents avoidance |
| Whether unjust enrichment claim is preempted by bankruptcy law | Trustee seeks unjust enrichment relief | Bankruptcy law preempts unjust enrichment in this context | Preempted; not reinstated |
Key Cases Cited
- Cunningham v. Brown, 265 U.S. 1 (1924) (establishes tracing requirements in two-trust scenarios (Ponzi-like))
- Begier v. IRS, 496 U.S. 53 (1990) (floating trusts; priority rules in tax/benefit contexts)
- Peterson v. Somers Dublin Ltd., 729 F.3d 741 (7th Cir. 2013) (interprets § 546(e) safe harbor; finality policy in securities)
- Mungo v. Taylor, 355 F.3d 969 (7th Cir. 2004) (standard of review; de novo for legal questions in mixed questions)
- Grede v. FCStone, LLC, 485 B.R. 854 (N.D. Ill. 2013) (district court on avoidance; analysis of two statutory trusts and tracing)
- In re Resource Tech. Co., 624 F.3d 376 (7th Cir. 2010) (discusses deference to bankruptcy court interpretations of orders)